Crypto

Celsius Move To Halt Cryptocurrency Withdrawals Draws Attention From Washington

Crypto lender Celsius Network’s decision to pause all withdrawals and transfers for customers as cryptocurrencies plunge is drawing attention from the administration and lawmakers.

The thinking within the Biden administration is that the regulations proposed to regulate stablecoins by the President’s Task Force report could be extended to the entire crypto space to prevent executions and platform shutdowns as in the case of Celsius.

“The recent events, Celsius and USterra, only reinforce the need for a regulatory framework for digital assets. These events reinforce the case for action and the need to mitigate the risks of these assets,” according to an administration official.

Celsius Network halted all swaps and transfers between customer accounts in the wake of “extreme market conditions” on Sunday night as crypto assets plummeted, prompting some to question the platform’s solvency. Celsius Network’s CEL token has plunged more than 50%.

Cryptocurrency & Bitcoin on the US currency investment background with the US Capitol building.  Digital currency is used for verified transactions while keeping a digital record in a decentralized system that uses cryptography, rather than a centralized authority.

Cryptocurrency and Bitcoin on the US currency investment background with the United States Capitol building. Digital currency is used for verified transactions while keeping a digital record in a decentralized system that uses cryptography, rather than a centralized authority.

Kavita Gupta, founder of early-stage blockchain fund Delta BC Fund, said that Celsius is a classic example of illiquidity.

“It’s a liquidity problem,” Gupta told Yahoo Finance Live. People who invested in Celsius expected returns of 16% to 18%, Celsius always said that it was taking that money as a hedge fund to manage it in other assets,” Gupta said. “When there was a big withdrawal and everyone was trying to get their [crypto] Outside it was like a classic bank problem. It’s just more people trying to get money out of it than they have liquidity.”

The PWG report said stablecoin issuers should have adequate reserves to ensure they can honor swaps. The thinking is that the same principle should be extended to exchanges where platforms should have adequate reserves so that when people want their money back they can get it easily and runs are avoided.

To help prevent runs, the PWG’s stablecoin proposals could be extended to digital asset exchanges. As with stablecoin issuers, client assets must be separated from trading platforms; digital wallets held on exchanges must be subject to federal regulatory oversight; exchanges should be restricted from lending customers’ digital assets; and they must also meet liquidity and capital requirements.

Hammer and electronic devices.  Blockchain regulation.

Hammer and electronic devices. Blockchain regulation.

The Securities and Exchange Commission did not immediately respond to Yahoo Finance for comment. SEC Chairman Gensler has repeatedly encouraged exchanges to register with the agency, threatening enforcement action if they don’t.

Meanwhile, the office of Sen. Kirstin Gillibrand (D, NY) said the senator’s bill co-introduced with Sen. Cynthia Lummis (R, WY) to regulate cryptocurrencies would help prevent the current turmoil in crypto markets by put cryptocurrency exchanges under the realm of commodities. Futures Trading Commission.

That would require exchanges to have significantly more capital ($20 million net adjusted capital) to support their trading activities. The bill would ensure that if an exchange or lender were to experience financial difficulties, customers would be assured that their assets would be recovered.

The bill also requires a 100% reserve, asset type, and detailed disclosure requirements for all stablecoin issuers to ensure that stablecoin holders can redeem the stablecoin for the equivalent dollar value at any time. .

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Jennifer Schonberger covers cryptocurrencies and politics for Yahoo Finance. follow her on @Jenniferisms.

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